All Forum Posts by: Joseph Hennis

I prefer to get a credit. Have my roof guy give me a bid and ask seller for that amount. You can't guarantee the seller will do quality work. In fact, you can pretty much guarantee they won't since it is out of their pocket. If you do let the seller do repairs, you need to reinspect. It sucks, but a $5k mistake is relatively small in real estate. Lesson learned.

In my market (california), 203k loans are ignored by sellers. If they have a house that won't qualify for conventional, they want cash.

There is nothing wrong with not wanting the tenants to know you are the landlord. It's a personal decision or strategy. I prefer to distance myself from the tenants and let the property manager handle everything. I know I wouldn't be a good property manager. I am too easy going. That's why I HIRE a property manager.

If for some reason you don't want to deal with the tenants then you aren't in the wrong business,  you just need to hire someone who is better than you at managing tenants!

If a tenant asks me if they can have a pet, I say "ask the property manager I have no idea". If they are someone driving by who wants to know details about price, etc., again "here's the property manager's number, give them a call". I certainly don't want the huge task of screening tenants and showing the property.

I prefer to be a manager of managers. If one of the property managers is not doing their job, I let them know I am displeased, what corrective action they need to take, and if it is not done, I send them packing.

Tobias mentioned the $100k in taxes above... That might be the driving factor for making this decision. If you are married you can avoid those taxes altogether.

Just get started with BRRRR, you can even refinance your personal residence without renting it out (if you still want to live there) to give you the capital to purchase other properties.

One thing to consider about your plan for BRRR, the buy. repair part... Is more difficult to do with loans... You mentioned 50k down on a 250k property, but if it needs significant repairs it won't qualify for conventional loans. You will need alternative financing. It's not impossible just more difficult and costly. If you refinance your primary first (maybe with a HELOC or home equity loan), you would be able to buy properties cash (or with very little financing), greatly simplifying the BR in BRRRR.

An important perspective can be gained by doing a simple thought exercise.

What if you had $1mil in debt, with perfectly break even cash flow, 30 year amortization. Let's say your properties did not appreciate either.

In 30 years, you would have $1mil and you would be a millionaire.

What if you had $100mil in debt...

In 30 years, you would have $100mil...

Debt is literally being converted into wealth over time. The greater the debt, the greater the wealth.

If you want to grow your investments, you will want to invest extra money in new properties and deals. Paying off debt is for when you want to "retire" from further investing.

To understand what benefit debt has to an investor, we should simplify the model. (I do this in physics and engineering to gain an understanding of a complex system)

If you invest 100k to buy a 100k property, and it goes up 10% in value, you gain 10k in value for a 10% return on investment.

If you invest 100k to buy a 100k property, and it goes down 10% in value, you lose 10k in value for a 10% loss.

If you invest 10k to buy a 100k property with a 90k loan, and it goes up 10% in value, you gain 10k in value for a 100% return on investment.

If you invest 10k to buy a 100k property with a 90k loan, and it goes down 10% in value, you lose 10k in value for a 100% loss.

Thus we can see by inspection, debt MAGNIFIES RETURNS. That's it, that simple. When would you want to stop magnifying returns?

If you are investing in real estate without using debt.... Honestly you could get better returns in the stock market (in most cases). 6% ROI from buying everything cash is not that great, but 40% ROI by having a bank finance you is awesome. In the above example the person with the debt and the value rising by 10%, that person doubled his/her money. That's an awesome return.